1260349--3/31/2006--SOUTHERN_STAR_CENTRAL

related topics

{capital, credit, financial}

{operation, natural, condition}

{cost, regulation, environmental}

{debt, indebtedness, cash}

Changes in Southern Star s regulatory environment and recent events in the energy markets that are beyond the Company s control may significantly affect its costs and access to capital markets. Southern Star is subject to numerous environmental and safety laws and regulations that may increase its cost of operations, or expose it to liabilities, which are not recoverable through rates or insurance. Southern Star does not control the rates that it is allowed to charge for its services and those rates may be decreased at any time, thereby decreasing its revenues and operating results. Substantial operational risks are involved in operating a natural gas pipeline system that could result in unanticipated expense or financial liability which may be not fully covered by insurance. Reduction in firm reservation agreements and the demand for interruptible services could cause significant reductions in Southern Star s revenues and operating results. Decreases in the availability of natural gas supplies could have a significant negative impact on Southern Star s revenues and results of operations. Operational limitations of the pipeline system could cause a significant decrease in Southern Star s revenues and operating results. Due to Southern Star s lack of asset diversification, adverse developments in Southern Star s pipeline business could negatively affect its ability to service its debt obligations. Department of Transportation regulations may impose significant costs and liabilities on Southern Star. Storage limitations may impact Southern Star s ability to recover its costs. Decreases in demand for natural gas may reduce Southern Star s revenues and operating results. Competitive pressures could reduce Southern Star s revenues and operating results. Southern Star faces known environmental liabilities at several sites and therefore could incur unanticipated cleanup costs not currently covered by the pipeline s rates or insurance. Southern Star is dependent on a limited number of customers for a significant percentage of its revenues. Southern Star is exposed to the credit risk of its customers in the ordinary course of its business. A substantial portion of the Company s debt matures in 2006 and is subject to refinancing risk. Reductions in the Company s credit ratings may negatively affect its cost of, and possibly access to, capital. Recent terrorist activities and the potential for military and other actions could adversely affect the Company s business, financial condition and results of operations. The Company s current debt instruments contain restrictive covenants that may restrict its ability to pursue its business strategies.

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1260349--3/31/2006--SOUTHERN_STAR_CENTRAL_CORP